Air Asia: Strategic Management Report

IntoductionAir Asia was founded in 1993 and has since grown to be one of the biggest airlines in the world. It initially operated in Malaysia and currently operates in over 25 countries (Ricart and Wang 2005). It began operations in October 1996, operating out of Kuala Lumpur as its central location (Ricart and Wang 2005). The airline was bought by Tune Air in 2001 for one ringgit, the equivalent of 0.26 US cents, at a time when the company had $10.5 million debt (Ahmad 2010). Tune Air comprised of three initial Malaysian investors, Tony Fernandes and Connor McCarthy (Ricart and Wang 2005). With Fernandes, a former Time Warner executive, at the helm, and McCarthy, RyanAir’s former director of operations, the business almost immediately eradicated the debt with ambitious CEO, Fernandes, implementing aggressive low cost systems throughout the organisation(Ricart and Wang 2005). In October 2004, AirAsia attracted over $200US million in capital through an initial public offer (IPO) in shares (Ahmad and Neal 2006). In 2009, a year when most airlines made considerable losses due to the financial crisis, AirAsia posted a profit of $161.1US million, highlighting their ability to perform in testing market conditions (Unknown 2010). In 2009 they also finally negotiated with Sydney Airport to begin flights with initial costs to be offset by moving into the cargo carrying market (Bruce 2009). The low cost structure of Air Asia is entrenched in the organisation in their mission statement, which is to “To continue to be the lowest cost short-haul airline in every market we serve, delivering strong organic growth through offering the lowest airfares at a profit” (AirAsia 2011), and their vision statement “To be the largest low cost airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares” (AirAsia 2011).. The industry for low cost carriers (LCC’s) in Asia is highly competitive. Currently operating in the Asian market are Valuair, Air Asia, Tiger Airways, Jetstar Asia, Air Deccan, Lionair, Nok Air and Orient Thai (Treitel 2004).

Recently the industry in which Air Asia operates has undergone several challenges. The Asian political landscape in the past has been particularly fragile with regards to the “open skies” agreements (Unknown 2008). Currently this is one of the more pressing issues in the region. The deregulation and liberalization of the area will provide massive opportunities for LCC’s in the region as new routes become available (Wensveen 2010). In the US, price competition since 1978 has forced the legacy airlines to cut back drastically on their costs (De Neufville 2008). Since then Australia, Canada, Europe, and Asia have all undergone similar deregulation (De Neufville 2008).

With fuel comprising a large percentage of the costing of a ticket, rising fuel prices will pose a significant challenge to the industry. Rising fuel costs, as well as the emergence of low cost carriers in Asia and around the world has forced airports to reinvent themselves, as well as providing opportunities for smaller regional facilities (Parkinson 2005). An example of this replicated throughout the world is similar to Melbourne Airport which has a separate terminal for Tiger Airways, which remains separate from the main terminal. These secondary terminals are specifically designed to improve on cost efficiencies.

This report aims to firstly analyse the external environments Air Asia operates in, as well as conducting an internal analysis. Using this information the report will then move to analyse the strategies currently implemented by Air Asia and then recommend potential improvements which could be made to these strategies.

External Analysis
The Macro Environment
The macro analysis in this report will be used to analyse and identify the forces around the globe which are out of Air Asia’s control. When analysing the strategies...

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SWOT Analysis 4
PESTEL analysis 5
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AirAsia is a Malaysian low-cost airline headquartered near Kuala Lumpur, Malaysia. AirAsia group operates scheduled domestic and international flights to 100 destinations spanning 22 countries. Its main hub is the klia2 (LCCT) at Kuala Lumpur International Airport (KLIA). The affiliate airlines are Thai AirAsia, Indonesia AirAsia, Philippines AirAsia, AirAsia Zest and AirAsia India .AirAsia X only focuses on long-haul routes. AirAsia's registered office is in Petaling Jaya, Selangor while its head office is at Kuala Lumpur International Airport.
10 years on after taking a bold chance to start a low cost airline, AirAsia’s CEO Tony Fernandes has built AirAsia from two planes to 115 aircraft today, flying to more than 400 destinations spanning 25 countries, making the slogan “Now Everyone Can Fly” come true. It operates with the world's lowest unit cost. It has hedged 100% of its fuel requirements for the next three years and achieves an aircraft turnaround time of 25 minutes whereas for others it is 45 minutes to 1.5 hours....

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STRATEGICMANAGEMENT
MGMT 3347
Table of Contents:
1.0 EXTERNAL ANALYSIS
1.1 Industry Identification
1.2 General Environmental Analysis
1.3 The Industry Environment
1.4 The Competitive Environment
1.5 Opportunities and Threats
2.0 INTERNAL ANALYSIS
2.1 The Firm’s Resources: Tangible and Intangible
2.2 Capabilities Identification
2.3 Core Competency Analysis
2.4 Value Chain Analysis
2.5 The Firm’s Weaknesses
2.6 SWOT Analysis
3.0 STRATEGIES AND RECOMMENDATIONS
3.1 Current Strategies
3.2 Future Strategies
4.0 REFERENCE LIST
Introduction
An analysis of the External Environment would be done so as to facilitate a direct comparison between the generic elements where AirAsia has been founded in. The report then would delve into an internal analysis whereby the Porter’s 5 Forces would reiterate the direct forces that would affect the Airline Industry and subsequently, AirAsia itself. The capabilities and core competencies of the firm would be explained in greater detail towards the latter part of the report before a series of analysis would be done to segregate the more influential ones from the rest. A series of strategies would be then recommended for AirAsia to undertake so as to continue building brand awareness and brand equity throughout the world as a low-cost carrier.
1.0 EXTERNAL ANALYSIS
1.1 Industry Identification
AirAsia...

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“Now Everyone Can Fly” described AirAsia’s value. Operational effectiveness and cost advantages created efficiency go directly to end user. Customer enjoy more surplus with price falls, and encourage more air travel among Malaysians (Khoo et all, 2005)
The study purpose is to analyse how AirAsia and its strategic cost management able to operate a business in low cost yet generate a profit, and able to sustain as one of the business leader in South East Asia.
2.0 LITERATURE REVIEW
2.1 What is Strategic Cost Management
Cost management is a process where entities have control, monitor and manage their own cost and expenses. It covers the whole budget of the business, inflow and outflow of cash and transactions in every certain of period. This is for the entity to keep track of their business transaction, and also to estimate budgets for the future. While strategic cost management is the overall recognition of the cost relationships among the activities in the value chain, and the process of managing those cost relationships to a...

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...known to have a first low fare in Asia. With in seven months of operation they all repaid all its debts. AirAsia earn $8 million of profits on sales of $66 million. AirAsia now can accommodate 20 cities with as low as $16 from kuala lumpur to senang. They are keeping prices low of maintain. Their regular fee from different cities. One of the competitor is valuair stated by a former SIA pioneer, 71 year old chin beng lim.
II – Statement of the Problem
Finding a way to develop and to improve the capacity of the airAsia, and developing a price for a affordable fare because not all people can avail the fare of airlines. For only seven months the airlines earn profit of $8 million on sales of $66 million. That’s why AirAsia was launched as asia first low fare. They are now expanding to Singapore and Bangkok in Thailand to accommodate more people and ofcourse to develop the AirAsia and give chance to other to ride an airlines. AirAsia one way fare as low as $16 kula lumpur to penang. Singapore bali round trip ticket on AirAsia is $123 while Garuda charges $305 Singapore airline $406 and Malaysian Airline system is $654. There is still a big defference of price between the AirAsia and other airline competitor.
III – Objectives of the study
Their objectives is to accommodate more people and let people experice fly above for an affordable price and AirAsia hope for stay growing competition and expand its market all...

...STRATEGIC ANALYSIS OF
AIRASIA
THE BEST LOW-COST CARRIER AIRLINES IN THE WORLD
ASSIGNMENT FOR MICROECONOMICS FACULTY OF ECONOMICS AND BUSINESS NATIONAL UNIVERSITY OF MALAYSIA
BY: IWAN BUDHIARTA P-46048
MALAYSIA – 2009
I.
INTRODUCTION
1
A low-cost carrier (also known as a no-frills or discount carrier) is an airline that offers low fares but eliminates all “non-essential” services. The typical low-cost carrier business model is based on: – –
–
a single passenger class a single type of airplane (reducing training and servicing costs) a simple fare scheme (typically fares increase as the plane fills up, which rewards early reservations) free seating (which encourages passengers to board early) direct, point to point flights with no transfers flying to cheaper, less congested secondary airports short flights and fast turnaround times (allowing maximum utilization of planes) "Free" in-flight catering and other "complimentary" services are eliminated, and replaced by optional paid-for in-flight food and drink.
– – – –
–
Simple Product A typical low cost airline product is extremely basic. It focuses on getting passengers from point A to B, cutting out all the “extras”. This means there are no meals, drinks or snacks served free on board. In certain airlines, these may be purchased on request. The aircraft have Narrow seating to permit greater capacity. Low cost airlines offer all-economy flights, with
2
no additional space...